How it works
A fintech lender makes a loan to a customer, then sells or assigns that loan to a special purpose vehicle (SPV), a company set up only to hold loans. The SPV pays for the loan with money borrowed under the warehouse facility. As customers repay, the cash flows into the SPV and pays interest and principal to the facility lenders.
The lender usually stays the servicer: it collects payments and deals with customers as before. Customers rarely notice any change.
The facility is committed up to a maximum amount for a set period, often a few years. During that time the lender can draw more as it makes new loans, as long as the loans meet the facility's rules. The details are covered in how a warehouse facility is structured.
Why lenders use one
- It grows with the loan book. The lender draws only as it lends, rather than raising a large amount at once.
- It costs less than equity. Funding loans with equity alone would mean selling far more of the company.
- The lenders look at the loans, not only the company. A young lender that is not yet profitable can still borrow, because the facility is repaid from a pool of loans that is kept separate from the lender's other debts.
Who provides them
Warehouse lines for European fintech lenders come from banks, private credit funds and specialist asset-based finance investors. Larger facilities often have more than one layer: a senior lender that takes the least risk, and a mezzanine or junior lender behind it. The lender itself usually puts in the most junior money, which absorbs the first losses.
What happens next
A warehouse is meant to be temporary for each loan, though the facility itself often keeps running. Once the pool reaches a size that makes it worth the cost, a lender may refinance part of it through a securitisation, which frees up the warehouse to fund new loans. Other lenders sell loans through a forward flow instead, or keep using warehouse lines and renew them as they mature. Practice varies by lender, asset class and market conditions.
What announcements usually tell you
Public announcements often give the headline size, the funders and the asset class. They rarely give the price, the advance rate or the triggers. Sizes sometimes include an "accordion", an option to increase the line later that the funder has not yet committed to; the tracker marks those as "up to". New SPVs and charges in the UK company register can be an early sign of a new facility: see register signals.